· TradeBid editorial team

Markup vs. Margin for Subcontractors: How to Price for Profit

Markup and margin aren't the same number. Learn the difference, the formulas, a conversion table, and how to price subcontractor bids for profit.

The short answer: Markup is what you add on top of your cost. Margin is the share of the selling price that's left after cost. A 20% markup gives you about a 16.7% margin, not 20%. Mixing the two up is one of the most common reasons subcontractors make less on a job than they planned.

The two formulas

  • Markup % = (Price − Cost) ÷ Cost
  • Margin % = (Price − Cost) ÷ Price

Both use the same dollars of profit. They just divide by different numbers. Markup divides by your cost, and margin divides by the price the customer pays.

Example: Your job cost is $10,000 and you price it at $12,000.

  • Profit = $2,000
  • Markup = $2,000 ÷ $10,000 = 20%
  • Margin = $2,000 ÷ $12,000 = 16.7%

Conversion table

| Markup on cost | Margin on price | |---|---| | 10% | 9.1% | | 15% | 13.0% | | 20% | 16.7% | | 25% | 20.0% | | 30% | 23.1% | | 40% | 28.6% | | 50% | 33.3% | | 100% | 50.0% |

To go from a target margin to the markup you need: Markup = Margin ÷ (1 − Margin). For a 20% margin, 0.20 ÷ 0.80 = 25% markup.

To price a job directly from a target margin: Price = Cost ÷ (1 − Margin). For $10,000 of cost and a 20% margin, $10,000 ÷ 0.80 = $12,500.

Why the difference matters

Say you want 20% of every dollar you bill to cover overhead and profit. If you add 20% to your costs, you'll only keep 16.7%. On $500,000 of annual billing, that gap is about $16,500, which could be the difference between a good year and a tight one.

Your accountant and your profit-and-loss statement report margin (profit as a share of revenue). If you set prices with markup, convert so the two match.

What counts as "cost"

Your markup or margin is only as good as the cost underneath it. Job cost should include:

  • Materials, including tax, delivery and waste.
  • Labor at the loaded rate: wages plus payroll taxes, workers' comp, insurance and benefits.
  • Equipment: rentals, fuel and owned-equipment charges.
  • Subcontractors and lower-tier suppliers.
  • Job-specific costs: permits, bonds, dumpsters, travel and per diem.

Overhead (office, trucks, software, insurance not tied to a job, your own salary if you're not on the tools) has to be covered too. Some contractors build overhead into the markup. Others add a separate overhead percentage before profit. Either works, as long as you do it on purpose.

Overhead and profit: a simple method

  1. Add up last year's overhead from your books.
  2. Divide it by last year's revenue to get overhead as a share of sales.
  3. Pick a profit target as a share of sales.
  4. Add the two to get your target margin.
  5. Convert to markup with Margin ÷ (1 − Margin).

Example: Overhead is 12% of sales and your profit target is 10%, so your target margin is 22%. The markup is 0.22 ÷ 0.78 ≈ 28.2%. On $10,000 of job cost, the price is about $12,820.

Should markup be the same on every line?

Not always. Many subcontractors use:

  • A lower markup on materials that GCs can easily price-check.
  • A higher markup on labor, which carries more risk and is harder to compare.
  • Extra markup on risky scope: tight schedules, unclear drawings or unfamiliar work.

Whatever you choose, keep it visible in your estimate, even if the proposal only shows the total.

Common mistakes

  • Using markup and margin as if they're the same.
  • Marking up raw wages instead of the loaded labor rate.
  • Forgetting overhead and calling the whole markup "profit".
  • Cutting markup to win without knowing your break-even.
  • Not checking results: compare each job's estimated margin to its actual margin after it's done.

How TradeBid handles markup

In TradeBid, each bid has editable markup alongside quantities, labor and materials. You set your own percentages, see the total, and export a branded PDF proposal. You decide how much detail the customer sees. See our sample bid.

FAQ

Is a 20% markup the same as a 20% margin? No. A 20% markup gives about a 16.7% margin. For a 20% margin, you need a 25% markup.

What markup should a subcontractor use? It depends on your overhead, risk and market. Work it out from your own overhead and profit targets using the method above, rather than copying a rule of thumb.

How do I convert margin to markup? Markup = Margin ÷ (1 − Margin).

Should I show markup on my proposal? Usually not as a separate line, unless the contract or bid form asks for it. Most subcontractors show a total price with a clear scope.

What does TradeBid cost? Apprentice is $149/month (up to 5 bids), Journeyman is $300/month and Master is $850/month. A single bid is $100. Every plan starts with a 7-day trial. See pricing.

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